Negative gearing is one of the most discussed — and most misunderstood — concepts in Australian property investment. Politicians debate abolishing it. Economists argue about its effect on housing affordability. And ordinary Australians use it every year to reduce their tax bills. This guide cuts through the noise with a plain-English explanation and real numbers, so you can decide whether it makes sense for your situation.
What Is Negative Gearing?
A property is negatively geared when the costs of owning it exceed the rental income it generates. The "loss" — the gap between what you spend and what you earn — can be deducted from your other income, reducing the amount of tax you pay.
For example: if your investment property earns $28,000 in rent per year but costs $40,000 to run (mortgage interest, rates, insurance, management fees, depreciation), you have a $12,000 loss. At a 37% marginal tax rate, that $12,000 loss saves you $4,440 in income tax.
Use our Negative Gearing Calculator to model your own property scenario with precise after-tax cash flows.
The Full Maths: A $600,000 Property on $110,000 Income
Let's walk through a real example. Jordan earns $110,000/year as a project manager in Melbourne and purchases a $600,000 investment property with a 20% deposit ($120,000). Jordan borrows $480,000 at 6.3% interest-only.
Annual income from the property: $510/week rent = $26,520
Annual costs:
- Mortgage interest (6.3% on $480k): $30,240
- Council rates: $1,800
- Water rates: $900
- Property management (8.5%): $2,254
- Insurance: $1,200
- Repairs and maintenance: $1,500
- Depreciation (Div 40 + 43, quantity surveyor report): $5,500
- Total costs: $43,394
Net rental loss: $43,394 − $26,520 = $16,874
This loss is deducted from Jordan's $110,000 salary, reducing taxable income to $93,126. The tax saving is significant.
Negative Gearing Cash Flow Example
| Item | Annual Amount |
|---|---|
| Gross rental income | $26,520 |
| Mortgage interest (I/O) | −$30,240 |
| Council & water rates | −$2,700 |
| Property management | −$2,254 |
| Insurance | −$1,200 |
| Repairs & maintenance | −$1,500 |
| Depreciation (non-cash) | −$5,500 |
| Net rental loss | −$16,874 |
| Tax saving (37% marginal rate) | +$6,243 |
| After-tax out-of-pocket cost | −$10,631/year (−$204/week) |
Jordan is effectively paying $204/week to own a $600,000 property — roughly the cost of a single takeaway night out per day. Whether that's a good deal depends entirely on what the property does in value.
Tax Saving by Income Bracket
| Taxable Income | Marginal Tax Rate (2025–26) | Tax Saving per $10k Loss | After-Tax Cost of $10k Loss |
|---|---|---|---|
| $18,200 – $45,000 | 19% | $1,900 | $8,100 |
| $45,001 – $120,000 | 32.5% | $3,250 | $6,750 |
| $120,001 – $180,000 | 37% | $3,700 | $6,300 |
| Over $180,000 | 45% | $4,500 | $5,500 |
The higher your income, the more valuable negative gearing is as a tax strategy. For earners below $45,000, the benefit is modest and likely not sufficient to justify the investment risk.
The Capital Growth Requirement: Why Negative Gearing Is Not a Strategy by Itself
Negative gearing is not profitable in isolation — it simply reduces your losses. The entire model depends on capital growth outpacing those losses over time. If Jordan's $600,000 Melbourne property grows at 5% per annum, after 10 years it's worth approximately $977,000 — a capital gain of $377,000 (before CGT). The 10 years of after-tax out-of-pocket costs at $10,631/year total about $106,310. Net outcome: a gain of roughly $270,000.
But if the property grows at only 1–2% per annum (as some inner-city Melbourne apartments have in recent years), those losses accumulate and you might exit with very little after CGT, fees, and holding costs. Capital growth is the variable that determines whether negative gearing makes you money — not the tax deduction.
Negative Gearing vs. Positive Gearing
A positively geared property earns more in rent than it costs to own. While less common in major Australian capitals, high-yield regional properties and some Perth or Adelaide properties are currently positively geared. Positive gearing means you pay tax on the surplus income — the opposite problem to negative gearing. Investors in lower tax brackets often find positively geared properties more attractive because the tax penalty is smaller.
The Policy Debate
Negative gearing has been a politically charged topic for decades. Critics argue it inflates property prices by giving high-income investors a structural advantage over owner-occupiers. Proponents argue it increases housing supply by incentivising private investment in rental properties. The ALP proposed limiting negative gearing to new properties in 2019, a policy that was a major factor in their election loss. Since then, both major parties have treated it as politically untouchable, and it remains intact in 2026.
For individual investors, the policy debate is largely academic. Negative gearing exists, it works, and the numbers above show how to use it. The more important question is whether you're buying the right property in the right market — not how to maximise a tax deduction on a mediocre asset.